What Explains the Dramatic Changes in Cost and Profit Performance of the U.S. Banking Industry?

Allen Berger () and Loretta Mester

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: We investigate the sources of recent changes in the performance of U.S. banks using concepts and techniques borrowed from the cross-section efficiency literature. Our most striking result is that during 1991-1997, cost productivity worsened while profit productivity improved substantially, particularly for banks engaging in mergers. The data are consistent with the hypothesis that banks tried to maximize profits by raising revenues as well as reducing costs, and that banks provided additional services or higher service quality that raised costs but also raised revenues by more than the cost increases. The results suggest that methods that exclude revenues may be misleading.

Keywords: Bank; productivity; efficiency; cost; profit (search for similar items in EconPapers)
JEL-codes: E58 E61 F33 G21 G28 (search for similar items in EconPapers)
Date: 1999-02
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Citations: View citations in EconPapers (29)

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Related works:
Working Paper: What explains the dramatic changes in cost and profit performance of the U.S. banking industry? (1999)
Working Paper: What explains the dramatic changes in cost and profit performance of the U.S. banking industry? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:99-10

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